FTSE 100 surges past 6,000 barrier

Index rises 2% to highest point since June 2008 helped by manufacturing sector and investors returning to shares

One of the strongest performing stocks of the day was online grocer Ocado, which powered through its 180p flotation price for the first time since its stock market debut in July Photograph: Justin Kase ztwoz / Alamy/Alamy

If 2011 was meant to be the toughest year for the British economy in decades, someone forgot to tell the City. Despite the gloom over the impact of the VAT increase and spending cuts, Britain's leading shares began the new year by powering ahead to close today at their highest level since the 2008 banking crisis.

The 2% rise in the FTSE 100, helped by a surprisingly strong performance from the country's manufacturing sector, allowed the index to close at 6,013 – 113.93 points up on the day. The last time it closed this high was June 2008, and only the second time it has shut above 6,000 since the banking crisis took hold.

Data released today showing manufacturers had ended 2010 by reporting their highest level of activity in 16 years added to the head of steam that had been building in the stock market before Christmas. That optimism was demonstrated by investors seeking riskier investments: today saw a 2% fall in the price of gold, a safe haven for investors which saw its price rise to all-time high in 2010.

Richard Hunter, head of UK equities at the stockbrokers Hargreaves Lansdown said investors were prepared to take on riskier investments by returning to shares. The Swiss franc, another traditional safe haven, also weakened.

"Manufacturing [activity] has also surprised on the upside," Hunter said.

The coalition government is hoping growth in the manufacturing sector, which accounts for just 8.2% of jobs, can help offset public sector job cuts.

Strength in the US economy, where there is evidence that Americans are spending, is also driving hopes of stronger economic growth this year. Ben Potter, a market strategist at IG Markets, said: "There's definitely an air of optimism about the global economic outlook now."

The stock market shrugged off any concerns about the rise in VAT from 17.5% to 20% despite the intensifying political row over the increase. The chancellor, George Osborne, angered the opposition leader, Ed Miliband, with his claim that VAT is a fairer way to raise revenue and close the budget deficit than raising income tax or national insurance.

One of the strongest performing stocks of the day was the online grocer Ocado, which powered through its 180p flotation price for the first time since its stock market debut last July. It was the biggest gainer in the FTSE 250.

The 100 biggest stocks in London were pulled higher by BP, which has lagged the market since the Deepwater Horizon oil well disaster last year. The 6% rise in its shares to 492.9, represented around a fifth of the rise in the index yesterday amid reports that Shell was prepared to bid for it and that it might not need to use all the $20bn compensation fund it set up after the Gulf of Mexico oil spill.

But, while the manufacturing data showed a stronger-than-expected tone, economists said 2011 would be a "challenging year". The Bank of England reported a £121m repayment of consumer credit in November, showing, according to Howard Archer of IHS Global Insight, the "current low consumer confidence".

Vicky Redwood, senior UK economist at Capital Economics, urged caution: "While the manufacturing recovery may continue to pick up steam, the outlook for the rest of this year does not look too promising. This is the year the fiscal squeeze gets under way, consumers face their first drop in real disposal incomes since 1981 and problems in the eurozone threaten to undermine the UK's trade prospects."